At the end of 2021, a new double taxation convention was concluded between Belgium and France. This new conventions’ entry into force is expected in 2023. We explain the most important future changes.
Current Franco-Belgian Double Taxation Convention
Anyone with cross-border interests may run into the risk of being subject to double taxation. To avoid such situations, most countries conclude a so-called double tax convention (hereinafter referred to as “DTC”). Such a DTC specifies, inter alia, the countries with taxing rights with respect to certain categories of income.
The current Franco-Belgian DTC has been into force for almost 60 years and has led to considerable discussions between citizens and tax authorities. For example, under pressure of the case law of the Court of Cassation, the application of the SFTC (standard foreign tax credit) to dividends on behalf of Belgian private investors, was only very recently reluctantly accepted by the tax authorities (see our previous article on this subject in VOKA Ondernemers West-Vlaanderen, 2021, ed. 10).
New Franco-Belgian DTC
In agreement with the latest OECD Model Convention, the new DTC includes an anti-abuse provision. Under this provision, so-called “treatybenefits” (such as an exemption) do not apply if a construction or transaction is designed to obtain such benefit as one of the main objectives. Treaty benefits can thus only be granted if the transactions are corresponding to the object and purpose of the DTC.
Taxation of French dividends
Under the current DTC, a Belgian individual who receives French dividends can claim a credit for the French withholding tax in Belgium under the SFTC scheme.
Under the new DTC, such set-off will no longer be possible. From now on, dividends of French origin, attributed to a Belgian individual, will be subject to a withholding tax of 12,80% in France. The balance will then be taxed in Belgium at a rate of 30% and no tax credit will be granted in Belgium. Thus, out of a gross dividend of 100,00 EUR, the Belgian resident will eventually receive 61,04 EUR [= (100,00 EUR – 12,80%) – 30%].
Dividends received by a Belgian company are exempt from withholding tax in France if the Belgian company holds at least 10% of the shares of the French subsidiary for at least 365 days. Subsequently, these dividends can also be exempt in Belgium under the so called DRD-regime (dividends-received deduction). When one of these conditions is not met, these dividends are also subject to a withholding tax of 12,80%, but a tax credit is granted in Belgium.
In principle, dividends paid by a French SCI (société civile immobilier) are exempt from corporate income tax under the DRD-regime in Belgium, since the protocol to the DTC now provides that a SCI is deemed to satisfy the valuation condition. In France, dividends paid by a SCI to a Belgian company are also exempt from withholding tax if the Belgian parent holds at least 10% of the shares and for at least 365 days.
The DTC now states that its provisions in no way prevent the application of the Cayman tax in Belgium. Income received by French fiscally transparent entities (such as SCI and SCP) that qualify as “legal constructions” are therefore also taxable in Belgium on the basis of the Cayman tax.
Capital gains on shares of real estate companies
Capital gains on shares of real estate companies (of which more than 50% of their assets consist of real estate) are now taxable in the country where the real estate is located. Belgian residents who realise a capital gain at the sale of their French real estate company, are consequently subject to a French capital gains tax.
Before the new DTC enters into force in 2023, it is advisable for Belgians who are economically active in France to check their French assets and investments against the new treaty. If not, they risk being confronted with unpleasant tax surprises.
Robbe Dumont and Evert Moonen
De Langhe Attorneys
Published in VOKA – Ondernemers, VOKA Kamer van koophandel West-Vlaanderen, edition January 2022